Compliance October 13, 2017

PANC 2017: Maximizing the Workplace Savings System

Retirement plan advisers are in a unique position to help working Americans build wealth and a sense of security and dignity when it comes to thinking about long-term finances. 
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Talking about his new book, “From here to Security – How Workplace Savings Can Keep America’s Promise,” Bob Reynolds, president and CEO of Great-West Financial and Putnam Investments, urged advisers to “fight to create a new sense of a true People’s Capitalism.”

Reynolds spoke on the second day of the PLANADVISER National Conference in Orlando. What he means by advocating for a “true People’s Capitalism” is the idea that not enough Americans have access to the financial markets, particularly in the form of tax-advantaged workplace retirement savings plan—and this needs to change.

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“We know that the more savings you have in a society at large, the faster the growth rate of the overall economy,” Reynolds explained. “This seems counterintuitive because the invested retirement dollars are not going straight to consumption, but the growth comes because the money is injected right into the capital markets, and this, in turn, spurs on the economy. Talking about ‘Peoples Capitalism’ means building a direct link from the retirement planning conversation to the growth and stability of the economy. We should all be able to participate and benefit from the markets.”

As described in Reynolds’ new book, there is ample evidence to show that, should providing at least basic access to tax-advantaged workplace retirement savings be mandated for all employers, there would be some $5.5 trillion in additional savings injected into the capital markets over just the next decade.

“I don’t have to explain that such a large amount of additional investing would be a tremendous impetus for boosting growth,” Reynolds said. “This is why I am fully in support of things like open multiple-employer plans, as well as universal access in the workplace to payroll deduction individual retirement accounts.”

Turning to the potential role of the advisers in attendance in promoting Peoples’ Capitalism, Reynolds observed that “every study we’ve done on the subject shows the clear value of advisers in this whole business.”

“When there is a skilled plan adviser in place, we very reliably see participation levels go up, contribution rates go up, and annual returns go up,” Reynolds said. “And so, we know the role of advisers in the business has been greatly successful and we need to continue this.”

He also repeatedly urged advisers to get in constant contact with their elective representatives and stress the crucial importance of protecting tax-advantaged retirement investing. It goes without saying that the less generous the tax benefits associated with workplace retirement savings are, the fewer the number of people who will be attracted into the system in the first place. Sure, there are analyses that show that after-tax retirement investing can still be very powerful for long-term wealth generation, but just as important are the optics and the message being sent by legislators.

“If the government weakens tax incentives to save, I am confident that fewer people would save, it’s that simple. Everyone in this room should be on the phone with their Senator and Congressperson telling them to leave retirement alone, regularly,” Reynolds concluded. “We need to make it clear how our industry works and that our savings are enjoying tax deferrals, not credits. I can tell you right now that tax-advantaged savings are being discussed as a source of revenue. We’ve all heard of ‘Rothification’ … I believe this is a real threat. It discourages younger people from participating and lowers how much they contribute. We must be very active.” 

Client Service October 13, 2017

PANC 2017: Plan Sponsor Confidential

Two winners of 2017 Plan Sponsor of the Year awards reveal how their adviser helped move the dial on their plans.
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At the “Plan Sponsor Confidential” panel at the 2017 PLANADVISER National Conference (PANC), Wednesday, winners of two of this year’s Plan Sponsor of the Year awards spoke about how their adviser has helped them—and why they thought they needed to start working with an adviser in the first place.

“The main reason is inertia,” said Larry Schmidt, director of human resources (HR) at Searles Valley Minerals, of why Searles hired Bukaty Companies Financial Services as its retirement plan adviser. “We are a mining company, and the leadership and employees don’t change often. Some of our employees are in their 80s. We are cautious in making changes, but we realized that sponsors will ultimately be held responsible for plans that don’t produce. We needed to get off the dime.”

The retirement plan committee of LSG Group “wasn’t convinced we needed help from an adviser because we had help from our finance department,” said Tobias Junker, vice president of human resources total rewards and labor relations. “But when we were asked about our fiduciary responsibilities, [we could not answer.] We went on a journey 15 years ago and decided to create a three-pronged approach comprised of the fiduciary committee, the recordkeeper and a retirement plan adviser, whose independence from the recordkeeper is key,” Junker said.

Schmidt agreed that it’s a fallacy to think a recordkeeper can accomplish all of the things that an adviser does. However, by “working together, they can work well in sync,” he noted.

The primary task that LSG Group’s adviser was charged with, Junker said, was to combine the company’s 22 entities—all with their own 401(k)s and very different needs. The adviser issued a request for proposals (RFP) and meticulously reviewed the results over the course of two years, he said. Then, once Bank of America Merrill Lynch was selected as the recordkeeper, it took LSG and its adviser nine months to create an investment lineup “to serve all the different needs, all the different risk profiles,” Junker said.

The end result was lower administration and investment fees, and higher participation. The adviser also recommended automatic enrollment and escalation, which, Junker said, “work perfectly.”

NEXT: ‘Our adviser gave us the courage’As far as what Bukaty has brought to the table for Searles, Schmidt said, “There are dozens of examples of how [Vince Morris, president] has helped us,” not least of which is recommending automatic enrollment at a 4% deferral rate paired with 1% annual escalation up to a 10% threshold and re-enrollment into a target-date fund [TDF]. That went against everything we believe, in terms of making decisions for employees—but the vast majority of plan participants never made a peep.

“We went from an 83% participation rate to a 96% participation rate, with a 40% increase in the average balance,” Schmidt continued. “Our adviser gave us the courage to do it. Our adviser is very, very thorough. He gives us the defense for every investment decision we make, and his work has resulted in much less turmoil in the fund lineup.”

Engaging participants through on-site meetings at the mines and holding focus groups with employees to find out what they want have also been critical, Schmidt said. “Vince Morris has helped us think about what we are doing and provides us with detailed quarterly minutes.”

Targeted communication is critical, Junker agreed—particularly for LSG, which has 120,000 participants in 60 countries speaking 40 different languages.

As far as how LSG’s adviser could improve his services, Junker said he realized he and the other members of the fiduciary committee can’t just rely on their adviser and recordkeeper. “We must keep on challenging each other,” he said. “At every quarterly meeting, we now have a lively innovation and challenge session,” which is very productive, Junker said.

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